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Trust and financial trades : lessons from an investment game wher reciprocators can hide behind probabilities

Author

Listed:
  • Radu Vranceanu

    () (Economics Department - Essec Business School)

  • Angela Sutan

    (ESC Dijon Bourgogne - ESC Dijon Bourgogne)

  • Delphine Dubart

    (ESSEC Business School - Essec Business School)

Abstract

This paper shows that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, more reciprocators will choose the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do not alter their behavior in a significant way, at least not for a very small external risk. Financial assets all come with a predetermined and contractual probability that by the time when the buyer has to receive the reward for his investment, "bad luck" might have brought the asset value down to zero. In the light of the experimental findings, such trades would not provide a favorable environment for building trust.

Suggested Citation

  • Radu Vranceanu & Angela Sutan & Delphine Dubart, 2011. "Trust and financial trades : lessons from an investment game wher reciprocators can hide behind probabilities," Post-Print hal-00572384, HAL.
  • Handle: RePEc:hal:journl:hal-00572384 Note: View the original document on HAL open archive server: https://hal-essec.archives-ouvertes.fr/hal-00572384v3
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    References listed on IDEAS

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    1. Radu Vranceanu & Delphine Dubart & Maxime Laot, 2010. "Une échelle de mesure de la connaissance en raisonnement économique et résultats d'une enquête menée en décembre 2009," Post-Print hal-00542948, HAL.
    2. Batista, Catia & Potin, Jacques, 2008. "International Specialization and the Return to Capital, 1976-2000," ESSEC Working Papers DR 08001, ESSEC Research Center, ESSEC Business School.
    3. Patricia Crifo & Nicolas Mottis, 2010. "SRI analysis and asset management : independent or convergent ? : A field study on the French market," Post-Print hal-00572379, HAL.
    4. Jason Dana & Roberto Weber & Jason Kuang, 2007. "Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 67-80, October.
    5. Batista, Catia & Potin, Jacques, 2006. "Stages of Diversification and Capital Accumulation in an Heckscher-Ohlin World, 1975-1995," ESSEC Working Papers DR 06008, ESSEC Research Center, ESSEC Business School.
    6. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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    Cited by:

    1. Besancenot, Damien & Vranceanu, Radu, 2011. "Banks' risk race: A signaling explanation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 784-791, October.
    2. Sutan, Angela & Vranceanu, Radu, 2016. "Lying about delegation," Journal of Economic Behavior & Organization, Elsevier, vol. 121(C), pages 29-40.
    3. Tagat, Anirudh & Kapoor, Hansika, 2017. "The trust broker game: A three-player trust game with probabilistic returns and information asymmetry," Economics Discussion Papers 2017-33, Kiel Institute for the World Economy (IfW).
    4. repec:eee:pubeco:v:156:y:2017:i:c:p:59-72 is not listed on IDEAS
    5. Christophe Heintz & Jérémy Celse & Francesca Giardini & Sylvain Max, 2015. "Facing expectations: Those that we prefer to fulfil and those that we disregard," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(5), pages 442-455, September.

    More about this item

    Keywords

    Trust; Financial transactions; Experimental economics; Investment game; External randomness;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G00 - Financial Economics - - General - - - General

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